How To Manage Your Credit Card

Chances are you have been advised to obtain (or avoid) a credit card at some point in your life. But before getting one you should ask yourself whether you need it or not. Credit Cards have the potential to be one of the most divisive products. Try asking around about credit cards and you will find many people that pay their bills using one, along with others that will assure you that credit cards are pure evil.

First, a Credit Card is nothing but a financial tool, and in order to benefit from it, you should acquire all the necessary skills and knowledge about it that you can. Credit Cards allow holders to borrow and spend money within an agreed limit. After using funds, the borrower will be charged interest until the credit balance is cleared. Every month the credit card owner gets an itemized bill of everything he/she has spent during the whole month. Some cards offer interest free grace periods, and if the owner clears the credit balance within the grace period, no interest is charged to them. You should check whether the card offers a grace period or not, as this can save you a lot in the long run. Terms and conditions differ from bank to bank, so carefully review all the terms and conditions offered when you decide to get a credit card. Lastly, always make sure you have enough funds to make the minimum repayment on your credit card. Failing to do so can trigger default notes which can affect your future credit rating.

Tips on choosing a Credit Card

With credit cards, people usually spend more money than they have. As credit cards allow making purchases within the credit limit at any time, people tend to spend more money than they otherwise would, which often results in financial instability.

So before getting credit cards, carefully check terms and conditions offered to you:

What is the interest rate applied. Is there any fee/penalty for not utilizing balances?

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Does the Credit Card give a interest free grace period? How is the grace period calculated?

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Does the Credit Card give a interest free grace period for non-cash transactions, or only for cash transactions?

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Are there fees and charges for cash transactions (i.e. withdraw from ATM)?

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Is there minimum repayment amount, and when is it due?

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What are the annual fees and charges?

How are penalty fees calculated if you miss the minimum repayment amount or interest payment?

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In addition, be sure to follow these rules so that you don’t fall into a credit trap:

Try avoiding any type of cash withdrawals. There can be hidden costs for cash advances. These often refer to but are not limited to withdrawals from ATM machines and banks. Even some kinds of transactions(i.e. buying traveler check) could be classified as cash withdrawals and cost you.

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Always stay within your limits. Banks can allow you to go beyond your credit limit and then immediately charge you for an unauthorized overdraft.

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If you are able to fully repay and clear up you credit limit, do it! Interest rates on credit cards are usually higher than interest rates of other consumer loans, so using a credit card as a source of financing can be more costly if you aren’t making payments.

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Think twice before making a purchase with your Credit Card. Ask yourself if you really need to make the purchase with the card, or if you can make the purchase in cash. Sometimes it can be helpful to only make certain types of purchases (like gas or groceries) on your credit card, so that you don’t forget to keep track of your credit balance.

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